The Federal Reserve has just released draft rules relating to a number of Dodd-Frank requirements, as well as Basel III, including a capital surcharge for systemically important financial institutions, limits on leverage and credit-exposure and liquidity requirements. The draft rules are meant to apply to U.S. bank holding companies with more than $50 billion in assets. Firms would have a year after the enactment of the rules to come into compliance, with stress testing beginning immediately after the rules are finalized.

The rules as currently written are sweeping in their application and give the Fed significant oversight, and in some cases, direct control, over key business decisions at the nation's largest financial institutions.

Interestingly, the Fed says the rules could also apply to "any nonbank financial firms that may be designated by the Financial Stability Oversight Council as systemically important companies." This leaves the door open to applying the rules to no-bank broker-dealers and previously unregulated investment firms like hedge funds.

Key aspects of the rules as drafted include:

Capital and leverage: requires companies to have annual capital plans, perform stress tests, and most specifically "maintain a tier one common risk-based capital ratio greater than 5%". After these requirements are met, the Fed propose risk-based capital surcharge based on Basel.

Liquidity: companies would first be required to meet "qualitative liquidity risk-management standards" and then come into compliance with quantitative standards drafted by the Fed to implement Basel III's liquidity requirements.

Stress tests: conducted annually by the Fed with company specific results released to the public. In addition, companies will be required to conduct their own, separate stress test annually and release the results publicly.

Credit limits: limit credit exposure to a single counterparty based on value of the firm's regulatory capital, with the intention of more tightly limiting credit exposure between financial firms.

Crisis intervention: triggers (capital levels, stress tests, etc.) would be put in place by the Fed and allow for "early remediation" to take place. Companies could be forced to limit growth, raise capital, sell assets or revise executive compensation. This may be the biggest news, as it gives the Fed early and significant ability to compel specific actions by regulated banks to head of or contain a crisis.